MTD for ITSA Exemptions: Who Doesn't Have to Comply?

MTD for ITSA Is Coming — But Not for Everyone

Making Tax Digital for Income Tax (MTD for ITSA) is one of the biggest changes to the UK tax system in a generation. But before you panic-buy accounting software, it's worth checking whether you actually have to comply at all.

HMRC has built in a number of exemptions and deferrals. Some people won't need to join MTD for ITSA — ever. Others just have more time before the rules apply to them.

The Basic Rule: Income Thresholds

MTD for ITSA is being rolled out in waves based on your gross trading or property income:

• From 6 April 2026: Sole traders and landlords earning over £50,000 gross per year
• From April 2027: Those earning over £30,000 gross per year
• From April 2028: Those earning over £20,000 gross per year

If your gross income from self-employment or property is below £20,000, MTD for ITSA does not currently apply to you. HMRC has not announced plans to bring people below that threshold into the scheme — though this could change in future.

Gross income means your total turnover or rental receipts before any expenses. Not profit — turnover.

Who Is Formally Exempt From MTD for ITSA?

Even if your income is above the threshold, HMRC recognises several categories of people who are exempt from the MTD for ITSA rules.

1. Digitally Excluded Individuals

If it's not reasonably practicable for you to use digital tools — due to age, disability, location, or religious beliefs — you can apply to HMRC for an exemption.

This is a formal process. You'll need to contact HMRC directly and explain your circumstances. Simply preferring paper or finding software confusing won't qualify. But genuine barriers — such as living in a remote area with no reliable internet, or a medical condition that prevents computer use — can result in a full exemption.

2. Practising Members of Religious Societies

Members of certain religious groups whose beliefs are incompatible with using electronic communications — such as some communities of practising Quakers — are specifically exempt under HMRC's existing rules. This exemption already applies for MTD for VAT and carries over to MTD for ITSA.

3. Those Whose Affairs Are Dealt With by a Third Party

If a person is unable to manage their own tax affairs due to mental or physical incapacity, and their affairs are handled by a third party such as a deputy, trustee, or carer, HMRC may grant an exemption. This is assessed on a case-by-case basis.

4. Insolvent Individuals

People who are subject to a debt relief order, bankruptcy order, or individual voluntary arrangement may be exempt from MTD for ITSA while those arrangements are in place. HMRC applies this pragmatically — if someone is in formal insolvency proceedings, their tax obligations shift significantly anyway.

What About PAYE-Only Employees?

MTD for ITSA only applies to people with self-employment income or property income. If you're purely a PAYE employee with no side income, no rental property, and no freelance work, MTD for ITSA simply doesn't affect you. Your employer handles your tax automatically.

The same goes for people whose only income is from savings, dividends, or a pension — MTD for ITSA is specifically aimed at unincorporated businesses and landlords.

What About Limited Companies?

MTD for ITSA does not apply to limited companies. It's a personal income tax obligation. If you operate through a Ltd company, your company files Corporation Tax returns — a separate system entirely. HMRC has a separate (and currently paused) plan called MTD for Corporation Tax, but that's years away and not confirmed.

Sole traders who are thinking about incorporating to avoid MTD obligations should get proper advice before doing so — there are tax and legal implications far beyond just the reporting requirements.

Temporary Exemptions and Deferrals

HMRC can grant temporary exemptions or deferrals in exceptional circumstances. These are not widely publicised but do exist. Situations that might qualify include:

• Serious illness or bereavement affecting your ability to comply
• Circumstances that make it genuinely impossible to comply on time
• Being newly self-employed with complex circumstances

If you believe you have grounds for a temporary deferral, the process is to contact HMRC directly — either via your tax agent or through the Self Assessment helpline — and explain your situation before your compliance date arrives.

What If You're Just Below the Threshold?

If your income sits just below £50,000 (or £30,000 or £20,000 at the later dates), you need to be careful. The threshold applies to your gross income in the previous tax year. If your income rises above the relevant threshold during a tax year, you'll typically be required to join MTD for ITSA from the following April.

It's worth keeping an eye on your income throughout the year. If you're approaching a threshold, it's better to explore your software options early than to scramble in March.

If that's you, now is a good time to compare MTD software so you're not caught out when the time comes.

Jointly Owned Property: A Common Question

If you own a rental property jointly with a spouse or partner, each person's share of the rental income counts towards their individual threshold — not the total rent received. So if a property brings in £45,000 a year and you own it 50/50, your share is £22,500. That would fall below the 2026 threshold but above the 2028 threshold.

This catches some people off guard. Always calculate your individual share of any jointly owned income when assessing whether MTD applies to you.

How to Apply for an Exemption

If you believe you qualify for an exemption, here's what to do:

• Don't just ignore MTD — that won't protect you from penalties
• Contact HMRC's Self Assessment helpline: 0300 200 3310
• Explain your circumstances clearly and in writing where possible
• If you use an accountant, ask them to handle the exemption application on your behalf
• Keep a record of any exemption HMRC grants you

HMRC has said they will assess exemption requests sympathetically — but you need to ask. Exemptions aren't automatic.

Bottom Line

Most sole traders and landlords earning over £20,000 will eventually need to comply with MTD for ITSA. But exemptions exist, thresholds matter, and not every type of income counts.

If you're in scope and you haven't yet sorted your software, the time to act is now — not April. Use our guide to compare MTD software and find one that fits your situation before the deadline arrives.

And if you think you might qualify for an exemption, talk to HMRC or a qualified accountant sooner rather than later. Assumptions are expensive in tax.